How did Tesco value its stores…

Tesco announced today a staggering loss for the last financial year. The loss includes a 3.8 billion GBP write down of property.

This begs a question. As far as I know the UK property market has recently improved.

Which begs the question as to whether Tesco valued its property portfolio on a true open market reflecting land prices and comparative rental values or on discounted future profit streams expected to be generated by the stores? If the latter then that valuation is actually a valuation by default of goodwill (trademark) which in accordance with economic theory allows the company to generate super profit over and above that generated by a no name competitor.

Now unless I am much mistaken you are not allowed to reflect either self generated goodwill or self generated brand value in the balance sheet. And only a significant fall in expectations for future profits could underly such a significant write down of property values. Or maybe Tesco are just admitting that no one will be interested in buying or renting their large hypermarkets should these need to be sold.

Which just goes to show the trap companies fall into assuming values will keep on rising.